SHRINKING THE ESTATE

For families that have a taxable estate and that own large real estate holdings, there is an excellent estate planning device know as "shrinking" the estate.

Suppose the parents own a tract of investment land worth $1 million and they decide to form a Family Limited Partnership and to place the land into the partnership. They will then proceed to make gifts of partnership shares to as many of their family members as they choose. Ideally, they will use their annual exclusion from taxation, $10,000.00 per year, to move the value of partnership shares out of their estate.

If the partnership had 100 shares, each share would be worth $10,000.00.

But, if father gives a daughter one share ... and she proceeds to sell that share to a non-family-member investor, ... that investor is likely to say, "I realize that this share is worth $10,000.00 to a family member; but, it is worth less to me because I will not be in control. The parents will retain control, as general partners. Therefore, I will offer only $6,700.00 for the share."

The value of that share ... and each share ... has just decreased by 1/3. It has shrunk. You have shrunk the estate.

Knowing that this is a likely scenario, estate planners have adopted a method of shrinking the value of each share ... and hence, the value of the whole, for gift tax purposes. In this example, the land that was worth $1 million for gifting purposes is now worth only $670,000.

The value of the estate has shrunk.

To expedite the transfer of assets out of the parents estate, many families use gifts to charity. If you want to give partnership shares to our cause, just tell your attorney and ac countant to include "The Foundation" in the annual gifts of partnership shares.